For those who think that this is the end ...

I am writing this three two days after the parent company of Lehman Brothers has filed for Chapter 11 protection, one day after the US Government has agreed to inject capital into AIG and hours after CDS rates on a strong firm such as Morgan Stanley have widened significantly. To many, it seems like the end of the financial system as we know it is near. The question is: How deep will this crisis go ? What shoe will drop next ? How much of our financial infrastructure lies open to destruction ?

The end-game, I believe, lies not with the financial economy in the narrow sense, but with the economy as a whole. How much more money can nations source to prop up what remains of our financial system ? In this, we have to remember that all of the (generally central bank-originated) measures that we have come to know have never existed to change the overall pattern of growth, but simply to smooth out the inevitable ups and downs that take us away from the long-term growth rate of the economy, what some call the 'business cycle'. Interest rates have never been a weapon to radically change the direction of our economy, they have simply served to prop us up when we are, temporarily, down, and to hold us back when we are getting ahead of ourselves. The long-term path of our economy depends on much larger variables, which no central bank or central government has ever been able to control.

When we think of the end-game in this whole sorry saga, we should therefore think of the big picture. The end-game consists of the collective power that any nation has to create, or destroy, economic growth that finances, or lacks the ability to finance, the overall growth that we enjoy, or lack. And in that sense, I believe the balance is largely positive. More financial institutions may go bust, or not go bust for the mere intervention of incredibly powerful government intervention. But that government intervention can only be financed by our collective ability to create long-term growth, our collective ability, as an economy, to profitably solve problems that we would all like to see solved - and that ability is unaffected.

Large government deficits will be created in getting through the current crisis. But I believe that those deficits will, in the long run, be financed by our joint ability to create value. Much remains to be done in this world that is far from trivial. Billions of us are looking for food, clean water and a life expectancy that has escaped them for too long. Legions of hard-working people in our developed, and less-developed, economies can create value by providing those solutions and can therefore finance the necessary sacrifices that we need to make right now. The present seems bleak, and we will no doubt go through a difficult couple of days. But the long-term picture is one in which much opportunity exists - and we have all the resources at our disposal to grab that opportunity and to put our economies, including our financial sectors, on a sound footing. It certainly is crunch time. But we can get through the crunch by realising the immense opportunity we have to create wealth and to pay off the deficits that, necessarily, we are incurring to get through these hard times.